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There's a time in every disaster when the whole thing just snowballs. We can talk about an avalanche which starts as just a few pebbles moving down the slope to become a roaring waterfall of snow and ice or, if you prefer to think about matters economic, when the eurozone's sovereign debt crisis becomes a full blown banking credit crunch.

It was entirely feasible that, perhaps 12 months ago, Greece could have defaulted on its unpayable debt and nothing much else would have changed. The banking, financial, system would have taken losses of perhaps €100 billion, true, but this is manageable, it's about 0.5% of EU GDP. Painful but manageable.

We might also argue that if the ECB had broken the rules and started buying up Italian and Spanish debt in large numbers 3 months ago that again, things could have been expensive but manageable. We'd have had a bit more inflation in the future, true, but there would have been financial system stability.

These opportunities, and many others like them, were not taken and so we're at the point now where The Economists says:

The present crisis is not about Italy's debt—not anymore, anyway. Yields on short-term Italian debt are now higher than on long-term Italian debt. Italy, like much of the euro zone, is facing a serious short-term funding crunch. If left to run, that crunch will eventually rip the currency area apart.

Ireland, Greece and Portugal are already out of the public markets. Spain and Belgium are rapidly joining Italy in facing a credit crunch. And what's worse, much worse, than that, is that the eurozone banking system is following suit.

Banks are finding that they simply cannot refinance the debts they need to in order to fund their lending. Thus the supply of credit, the money supply in the wider sense, is contracting and contracting at a fearful rate in some countries.

Essentially the ECB is allowing to happen what happened in the US in 1929, 1931. What allowed the Crash to turn into the Depression. A rapidly falling money supply is not a necessary condition for a recession/depression. There are other ways that can be achieved. But it is a sufficient condition: it happening will lead to a contracting economy.

And that, sadly, is where we here in Europe are. At the mercy not of greedy bankers, but suffering from central bankers who haven't understood what happened 80 years ago.